Employed physicians whose compensation was partly incentive-based improved quality and efficiency faster than non-employed physicians in the same network, according to an analysis of the Geisinger Health Systems' physician compensation structure that appeared in the September issue of Health Affairs.

Thomas H. Lee, MD, of Geisinger in Danville, Pa., and colleagues compared the performance of 220 primary care physicians and 654 specialists who are employed at Geisinger to the performance of non-employed, credentialed physicians who provide services within the system.

Employed physicians receive a base salary that constitutes approximately 80 percent of expected total compensation. The other 20 percent, according to the authors, is variable and depends on individual performance and annual group performance.

Reflecting that most patient care is still compensated on a fee-for-service basis, the 80 percent of total expected compensation that is preset is primarily determined by the physicians' productivity as measured by relative value units (RVUs), although administrative, research and teaching activities also are included in the base amount. Geisinger uses a proprietary survey to benchmark productivity and compensation for physicians, and the base salary is adjusted for physicians who are outliers.

According to the authors, the compensation model is meant to drive two goals: the first is for each physician to exceed the 60th percentile for his or her specialty in both RVUs and compensation, and the second is for the health system to improve quality and efficiency through innovation and integration of care. The variable portion of physician compensation reflects that latter goal.

"Each physician has incentive goals that are consistent with the systemwide strategic aims of Geisinger Health but that are developed at the service-line level," according to the authors.

Specialists' variable compensation is determined by five factors: quality, financial, innovation, legacy and growth. Quality is the single biggest determining factor (40 percent of the incentive-based portion, or 8 percent of total compensation).  Specialty leaders and senior management define quality measures and goals by department; some goals require teamwork and leadership, not simply individual effort. The financial category, which accounts for 25 percent of the incentive payment or 5 percent of total compensation, "directly reflects the units of work recognized under fee-for-service contracts during the prior six months," according to the authors. However, the financial incentives offer only modest incremental increases for productivity that exceeds the 60th percentile in the physician's specialty, and therefore extremely high productivity does not directly translate into extremely high compensation.

For primary care physicians, the incentive-based portion of their compensation is determined through analysis of quality, participation in Geisinger's medical home model, financial performance and citizenship (which Geisinger defines as collaboration and teamwork). Again, quality and financial performance are the two most significant determinants of incentive compensation.

Geisinger's data suggest that employed physicians subject to the incentive-based compensation system are improving faster across all metrics than credentialed, non-employed physicians delivering services within the Geisinger system. In addition, the article reported a lower than average rate of physician turnover and higher than average retention rate among employed physicians at Geisinger, and noted that these numbers have shown steady improvement over the past decade as the incentive system was introduced and refined.

The authors emphasized that the compensation system is a work in progress and that modifications are introduced every year. However, the basic structure reflects the reality that productivity and efficiency are critical as long as fee-for-service remains the norm, and that these qualities should be encouraged and rewarded. But it also demonstrates that rather small incentives to improve quality and integration of care can drive larger changes in physician behavior.

Despite the challenges of implementing quality determinants which may rely on collective rather than individual efforts, physicians often will embrace the challenge and respond with improved performance, the authors concluded.